Managerial Economics 610 - Essay Example

all potential candidates for promotion to attend a number of seminars and take an exam upon completion around key terms and concepts required to be mastered in order to cope with the demands of the new supervisory role. The success for promotion relates to a large extent on the quality of the answers you will provide to this exam, the way they will be presented and the justifications (where applicable) of own views put forward. Two key assumptions of perfect competition are that (1) each firm is too small to affect the market price and output of an industry and that (2) firms produce homogenous products.

Thus, given these two conditions, it is not possible for perfectly competitive firms to view each other as fierce rivals in the market. The firms will be merely responding to market signals in the industry. In particular, each firm will respond to a given price. Prices are given in a perfect competition and no firm is able to influence the price because of homogeneity of products and as each firm is too small in relation to the market. When total revenue is less than the total variable cost, it is implied that total revenue (TR) cannot even pay for the total variable cost (TVC) of the firm.

Variable costs are costs that vary based on the output of the firm. It means that additional costs are paid for by the revenue of the firm as output is increased. It therefore makes no sense for the firm to continue production in the short run. If TR>TVC applies, it need not follow that the firm is making a profit because the fixed costs are not necessarily covered for by the total revenue. In other words, TRTVC applies. Nevertheless when TR>TVC and TR